Open AccessEmpirical Patterns of Firm Growth and R&D Investment: a Quality Ladder Model Interpretation
Author(s) -
Klette Tor Jakob,
Griliches Zvi
Publication year - 2000
Publication title -
the economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.683
H-Index - 160
eISSN - 1468-0297
pISSN - 0013-0133
DOI - 10.1111/1468-0297.00529
Subject(s) - interpretation (philosophy) , investment (military) , quality (philosophy) , economics , sociology , classical economics , management , political science , law , philosophy , linguistics , politics , epistemology
We present a partial equilibrium model of endogenous firm growth with R&D investment and stochastic innovation as the engines of growth, drawing on the quality ladder models in the macro growth literature, and the literature on patent races and the discrete choice models of product differentiation. The model fits a number of empirical patterns well, including: (i) a skewed size distribution of firms with persistent differences in firm sizes, (ii) firm growth independent of firm size, as stated in the so‐called Gibrat's law, and (iii) R&D investment proportional to sales.